Navabharat Ferro Alloys (Code: 513023) Rs.71

Established in 1975, Nava Bharat Ferro Alloys Ltd (NBFAL) is a diversified company engaged in the manufacture of Ferro Alloys like Ferro chrome, Silico manganese, Ferro manganese which are major raw materials for Iron & Steel companies. Today, it is among the largest fully integrated manufacturer of Ferro alloys with captive power plants. The company exports its products to leading foreign companies in USA, Korea, Japan, Indonesia, Italy, Turkey, Spain etc. Its clientele includes reputed biggies like TISCO, SAIL, Essar Steel, Jindal Vijaynagar etc. in the domestic market and POSCO, NUCOR, NIPPON, SUMITOMO etc. in the international markets. Besides generation of power, NBFAL also manufactures sugar and its by-products.

Its manufacturing is spread across two states. Its Paloncha plant at Andhra Pradesh has the capacity to manufacture 75,000 MTA of ferro alloys with a captive power plant of 50 MW whereas its second plant is in Orissa with 75,000 MTA capacity with a 30 MW thermal power plant. The company has a 3500 TCD sugar plant with a 6 million litres per annum distillery and co-generation power plant of 5 MW at Samalkot in Andhra Pradesh. To cater to the rising demand, NBFAL has recently set up a new furnace in Andhra Pradesh, catering to the production of Manganese Alloys with a capacity of 50,000 MTA, which is expected to start commercial operations in a couple of months. With this expansion, NBFAL’s total smelting capacity will be enhanced to 2,00,000 MTA. Besides it is planning to set up an Rs.80-crore power plant with 32 MW capacity in AP and 15 MW plant in Orissa for captive consumption. Having expanded its cane-crushing capacity from 2,500 to 3,500 TCD recently, the company is now weighing options to raise the capacity to 4,500 TCD first and further to 5,000 TCD over the ensuing two seasons. The co-generation capacity would also be increased to 9 MW from 5 MW at a cost of Rs.20 cr. NBFAL is also looking forward to opportunities in the area of importing raw sugar and refining it, which would enable the company to use its idle capacities for another 3/4 months.

NBFAL has been a dividend paying company since 1972, which signifies the company’s investor-friendly outlook. For FY05, while Sales grew marginally by 7% to Rs.422 cr. the NP almost doubled to Rs.106 cr. inspite of the fact that production was affected due to severe fire accident at its Orissa plant in late Nov 2004, for which the company has partly received the insurance claim and the balance will come soon. Only in May 2005, the plant resumed its operation and is currently running at full capacity. For FY06, NBFAL is expected to report a topline of Rs.525 cr. and bottomline of Rs.120 cr. leading to an EPS of Rs.18 on its small equity of Rs.13.40 cr. with a FV of Rs.2 per share. Investors are strongly recommended to buy at current levels with a price target of Rs.120 (i.e. 70% appreciation) in 9~12 months.